Mistakes Private Companies Often Make when Hiring an Outside CEO

We have all heard this story before: A successful founder intends to retire and hand off to someone who has previously led strong businesses from a well-known company. A private equity partner wants a proven leader to come in, insert some new thinking and make the tough decisions to deliver on an agreed growth plan. In some cases, the plan is to have both founder and new CEO co-lead the company to preserve the soul of the business yet drive scale at the same time.

These seem like win-win scenarios for all involved. The founder brings in someone with fresh external best practices to the business. The investment partner ultimately helps create greater value and yields expected returns from their original investment thesis. And the newly appointed CEO, who has a proven history of success, gets to land her first top job and make a greater impact than ever before.

Underneath all these great intentions, there is often a bumpy road to success for the founder, organization, optimistic investor, and the new CEO. We have all too often observed organization “organ rejection” with the new CEO, misalignment between founder and the CEO, and overestimating the company’s agility to change under new direction from an outsider. Ultimately, the CEO is unable to make a meaningful impact and the business stalls in its growth aspirations. We often see 4 common reasons why the external CEO fails to be successful in private companies:

• Recruiting a CEO solely for their experience and pedigree. Boards regularly hire for expertise or experience (aka the “what”) that are lacking in the company or are required at the next strategic pivot. This often comes at the expense of overlooking “how” the CEO will lead once in the company. Cultural fit and ability to align an organization are missed routinely. Lack of clarity on key success attributes, including EQ, are often overlooked.
• Lack clarity of how the founder will shift and share accountabilities. Sharing or passing decision making and responsibilities is not easy for any successful leader. Failing to address this early creates dysfunction and pain for the entire organization. Not having a handoff plan with ongoing discussion and regular adjustments can lead to major misalignment. Both founder and the new CEO have shared responsibility to learn from each other, provide feedback, and provide a unified voice to the organization.
• Poor CEO integration planning into the business. Clarifying accountabilities is critical, but it is only one step in a broader integration process. When placing smart, successful people, we typically drop them in and assume they will find a way. The pressure to take action and make a mark early often comes at the cost of insufficiently learning the business or understanding the market. Building key relationships and setting a proper direction for the company take a lower priority. The learning and performance curve for the new CEO becomes too long and patience runs out.
• CEO arrogance and making incorrect assumptions. Successful business leaders from iconic companies come with confidence, a proven track record, and professional training and coaching to handle many business scenarios. The new CEO assumes she can use the same approaches that have worked at other companies and fails to listen, learn, and tap into the company’s existing talent. External CEOs sometimes lack the learning agility to drive change without their familiar systems, information, and cadence.

While these scenarios sound all too familiar, they are avoidable. Having a clear alignment of the business context, strategic needs and near-term deliverables is critical. Role scope and transition planning should be outlined and understood by all. In addition, hiring decisions should be made using objective assessment by evaluating experiences, success attributes, emotional intelligence, and decision-making ability. All should start with a robust understanding of the organizational context in which the new CEO is entering, and address transition needs in a proactive, respectful, and flexible way. Not all exceptional corporate or professional executives can be successful in private companies; however, investing in better planning and diligence up front can certainly improve the probability.